However, more recently, the ‘last-time buyer’ has emerged from relative obscurity demanding to be recognised. Currently, the CML estimates that more than a third of all lending will extend beyond a borrower’s 65th birthday, so this is a growing – and challenging – segment of the market.
It is wonderful that not only are people reaching retirement with the expectation that they will live longer than ever before but that their retirement will be an active one, pursing passions such as travel that they now finally have the time to enjoy. However, the retirees of the next decade and beyond will not be as well prepared financially for retirement as their predecessors were; due to lack of final salary pensions combined with insufficient savings, increased longevity and lower investment returns post-financial crisis.
With an estimated £2trn of property equity held by the over-50s, the future source of funding retirement is staring us right in the face. But the retirement lending market is still a fraction of the total UK mortgage market where we saw an estimated £220 billion borrowed in 2015; making it vital that we innovate current approaches to regulation, distribution and proposition to reach borrowers who do not fit into any of the ‘usual boxes’.
Not only may they have a variety of income sources – some variable or harder to evidence – but they may well consider their housing equity to be a potential retirement funding source rather than simply a home. I was privileged to chair a session entitled Preparing for the Borrowers of Tomorrow at the recent CML Annual Conference which used a Dragons’ Den format to challenge the industry’s ‘Rising Stars’ to answer these questions.
Following a lively discussion, the idea from Kasar Ayub, who works as a quality assurance test analyst at The Northview Group, was voted as the most innovative. He proposed a range of mortgage products which see lenders working with charities to purchase older borrowers properties which are then split into units. The original owner would remain in residence while the other units would be offered to the social housing sector.
While the panel and audience picked Kasar’s idea, he was up against some stiff and well thought out competition. Other finalist ideas included a retirement mortgage combining features of traditional and lifetime mortgages and a part-repayment, part-interest only flexible mortgage. Another contestant highlighted the benefits of an equity leasing product which looked to convert retirees’ equity into an income stream while helping first-time buyers onto the property ladder – a multi-generational approach which would look to tackle two issues at once. All interesting ideas worth considering further.
As we consider how we can best meet the borrowing needs of the 20% of the over-65 UK population who may want or expect very different things from products, we need to be open to considering or at least discussing options that we have not looked at before. Indeed, we need to adapt to survive and thrive – whether this means new product innovation, a rethink of regulation or considering broadening our distribution reach. One thing I am certain of is that the industry, policy makers and regulators must work together to develop new solutions for this new generation.